Measuring microfinance’s impact on poverty in Peru

Microfinance has been seen as a way of helping relatively poor people help themselves. How can we judge whether microfinance institutions (MFIs) have reached the ‘double bottom line’ – achieving social goals while remaining financially self-sustainable? Is it possible for MFIs to survive in competitive environments and still provide products and services to suit poorer clients?

A paper from the UK’s University of Bath evaluates the impact of a village banking programme by Promuc, a partnership of Peruvian not-for-profit organisations working to promote micro-enterprise development as a strategy for poverty reduction and women’s empowerment.

Peru ranks as a middle-income country but because the distribution of income is highly unequal, poverty incidence is high. Microfinance is widely available. More than half of all Peruvian households below the official poverty line had access to credit in 2000, including 15 percent of households living in extreme poverty.

Researchers compared two assessments of the poverty status of Promuc clients: one carried out by the Consultative Group to Assist the Poorest (CGAP) using its standard ‘poverty assessment tool’ (PAT), and the second as part of a larger study carried out under the Ford Foundation’s Improving the Impact of Microfinance on Poverty: An Action Research Programme (Imp-Act). They then compared quantitative and qualitative approaches to impact assessment of the programme. The authors conclude that the poverty status of microfinance clients can best be assessed by routine monitoring of poverty figures, while impact can best be assessed using qualitative approach.

Researchers found that Promuc had a positive effect on the income of many clients, particularly those who had higher initial incomes. In addition:

• Promuc client households on average own less valuable assets, spend less on clothing and are more likely to be headed by a woman.
• Households with a higher proportion of self-employed or jobless workers have significantly lower levels of income per adult.
• Households with electricity have significantly higher levels of income per adult.
• The programme has a significant effect on individual and household income but no effect on business sales or profits.
• Being an active client of Promuc is associated with a faster growth of monthly income.

They argue that:

• There is a role for qualitative interviews in helping MFI managers monitor impact at the client level, particularly if these can be linked in with periodic surveys and poverty monitoring.
• Poverty scoring allows fluctuations in poverty status of clients over time (and by client category) to be analysed more thoroughly.
• Costs of poverty monitoring can be reduced by relying on available household survey data and national poverty lines.
• Econometric impact assessment is too complex, time consuming and expensive to warrant frequent use by MFIs.

Source(s):
‘Monitoring the Diversity of the Poverty Outreach and Impact of Microfinance: a Comparison of Methods Using Data from Peru’, University of Bath Development Policy Review 23 (6), pages 703-723, by James Copestake, Peter Dawson, J.P. Fanning, A. McKay and Katie Wright-Revolledo, 2005
‘PROMUC, Peru: Summary Sheet’ Full document.

Funded by: Ford Foundation Improving the Impact of Microfinance on Poverty: An Action Research Programme (Imp-Act)

id21 Research Highlight: 7 April 2006

Further Information:
James Copestake, Peter Dawson and Katie Wright-Revolledo
Department of Economics and International Development
University of Bath
Bath, BA2 7AY, UK

Tel: +44 (0)1225 383859
Contact the contributor: j.g.copestake@bath.ac.uk

Department of Economics and International Development, University of Bath, UK

Contact the contributor: p.m.dawson@bath.ac.uk

PROMUC
Av. Arenales 645
Lima 1
Peru

Contact the contributor: postmast@promuc.org.pe

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'Realising the potential of microfinance' id21 insights 51

'Learning more about microfinance beneficiaries in Peru'

'Debt from microfinance traps Bolivia’s poorest'

'Microfinance institutions versus other financial service providers in Kenya: competing to give credit?'

'Making microfinance meaningful – “the triple bottom line” approach in South Africa'

'Poverty and gender: the limits of microfinance'

'Sending money home: Can remittances reduce poverty?' id21 insights 60